A leading financial journal asked this question the other day: Is Greece…”just the leading edge of another phase of the world financial turmoil, this time focused on government debt instead of banks or mortgages?”
The financial crisis of 2008 and the great recession that’s followed came about because financial markets created a huge debt-based bubble of false values. When that bubble popped, governments in this country and Europe poured trillions of dollars they didn’t actually have into cushioning the subsequent recessionary slide. This cushion was also debt-based. Sovereign debt-based.
The thinking behind this approach isn’t hard to understand. Governments thought that by pouring enough money they didn’t actually have, borrowed money, into fallen markets, the markets would bounce back and be able to repay government largesse via growth and soaring tax revenues.
So here’s what one now has to consider when evaluating this strategy. Is growth in Europe and the U.S. and Japan strong enough to justify this hope? And if not, will real growth economies like China continue to lend into this black hole so it can get deeper?
Or, summing up, and referring back to the above: Is Greece…”just the leading edge of another phase of the world financial turmoil, this time focused on government debt instead of banks or mortgages?”
Well, yeah.
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